2022 Supreme(Del) 1274

IN THE HIGH COURT OF DELHI AT NEW DELHI
C. Hari Shankar, J.
M/s Garg Builders & Ors. - Appellants
Versus
Hindustan Prefab Limited & Ors. - Respondents
O.M.P.(I) (Comm.) 200 of 2021 and I.As. 7653-55 of 2021
Decided On : 02-05-2022

The invocation of an unconditional bank guarantee can only be interdicted in exceptional circumstances, such as egregious fraud, irretrievable injustice, or special equities.

Headnote:

The Court held that the invocation of the bank guarantees by HPL was in accordance with the terms of the bank guarantees and that there was no egregious fraud, irretrievable injustice, or special equities that would justify interdicting the invocation. The Court also held that the petitioner's contention that HPL owed it amounts in excess of the amount covered by the bank guarantees was irrelevant to the issue at hand and that any amounts owed by HPL to the petitioner would have to form the subject matter of resolution by arbitral proceedings.

Fact of the Case:

The petitioner, Garg Builders, had entered into three contracts with HPL for the construction of various projects. As required by the agreements, the petitioner provided HPL with nine bank guarantees totaling ? 20 crores. Disputes arose between the parties, and the petitioner initiated arbitration proceedings. Prior to the arbitration, the petitioner filed three petitions under Section 9 of the Arbitration and Conciliation Act, 1996, seeking a stay on the invocation of the bank guarantees by HPL.

Finding of the Court:

The Court found that the invocation of the bank guarantees by HPL was in accordance with the terms of the bank guarantees. The Court also found that there was no egregious fraud, irretrievable injustice, or special equities that would justify interdicting the invocation. The Court further held that the petitioner's contention that HPL owed it amounts in excess of the amount covered by the bank guarantees was irrelevant to the issue at hand and that any amounts owed by HPL to the petitioner would have to form the subject matter of resolution by arbitral proceedings.

Issues: 1. Whether the invocation of the bank guarantees by HPL was in accordance with the terms of the bank guarantees? 2. Whether there was egregious fraud, irretrievable injustice, or special equities that would justify interdicting the invocation? 3. Whether the petitioner's contention that HPL owed it amounts in excess of the amount covered by the bank guarantees was relevant to the issue at hand?

Ratio Decidendi: 1. The Court held that the invocation of the bank guarantees by HPL was in accordance with the terms of the bank guarantees because the bank guarantees required HPL to merely state that the amount claimed was required to meet the recoveries due or likely to be due from the petitioner, and HPL had made such a statement in its letter of invocation. 2. The Court held that there was no egregious fraud, irretrievable injustice, or special equities that would justify interdicting the invocation because the petitioner had not pleaded egregious fraud, the petitioner's contention of irretrievable injustice was based on the precarious financial condition of HPL which was not supported by the evidence, and the petitioner had not established any special equities. 3. The Court held that the petitioner's contention that HPL owed it amounts in excess of the amount covered by the bank guarantees was irrelevant to the issue at hand because the issue was whether the invocation of the bank guarantees was justified, not whether HPL owed the petitioner any money.

Final Decision: The Court dismissed all three petitions filed by the petitioner.